Democrats’ leftward drift is blocking tax reform

Is Washington gridlock the GOP’s fault? That’s what Norman Ornstein of the American Enterprise Institute and Thomas Mann of the Brookings Institution claim in a recent Washington Post op-ed. According to them, Republicans have become “ideologically extreme” and are blocking needed bipartisan reforms.

That certainly isn’t true, with respect to tax reform. The landmark Tax Reform Act of 1986, which slashed tax rates in a bipartisan deal, passed both chambers with large majorities. It was designed so as not to raise taxes on any income group. But today, the Democrats are not interested in any such revenue-neutral deal.

The comments by Harvard University’s Lawrence Summers, arguably the most important economist on the Democratic side for the last two decades, last week at Brookings exemplify this attitude. Summers discussed four priorities for tax reform.

First, he stressed the “central importance of revenue raising.” He opined that “any discussion of tax policy needs to start there” because the government needs a “significant increase in revenues.”

Next, he said he wants to strengthen “progressivity” and ensure that high earners pay a “fair share.” Summers implied that the tax code should be a tool for redistribution with government policy targeting the ratio of high-earner incomes to middle-class incomes.

Summers rated the other two goals of tax reform — economic efficiency and simplification — as less important. Indeed, he pooh-poohed them. Yet those two goals have long been synonymous with the meaning of “tax reform,” and were central to the policy thrust of the 1986 act.

Republicans today still support the goals of 1986 — cutting rates, ending loopholes and improving efficiency within a revenue-neutral package. House Budget Chairman Paul Ryan’s (R-WI) tax plan is a good example. But for Summers, President Obama and Democratic leaders in Congress, tax reform has morphed into an agenda of growing the government and penalizing high earners.

For further evidence of the Democratic shift, let’s compare Summers’ goals with the tax reform goals that Democrat Dick Gephardt (R-MO) described in his 1985 Cato Journal article. Gephardt — who would become House majority leader — was a key player in the 1986 tax reform effort. In his article, he says, “We in Congress take pride in the free market system,” which illustrates why he was able to forge a deal with free-market Ronald Reagan. You never hear Democratic leaders say that sort of thing today.

Gephardt said that the “most important” goal of tax reform was to “stimulate the growth of our economy” and to “achieve greater efficiency in the way the tax code works.” By contrast, with respect to tax efficiency and neutrality, Summers said that he puts “less emphasis on these questions right now in the United States than I would have over most of the last 25 or 30 years.”